An indictment unsealed on December 9, 2020 shows that cryptocurrency founder, Amir Bruno Elmaani (aka “Bruno Block”) has been charged with two counts of U.S. federal tax evasion. Elmaani is alleged to have made millions of dollars in income from the sale and exchange of cryptocurrencies but attempted to obscure his ownership of that income through various schemes and evaded reporting that income to the U.S. IRS.
In September and October 2017, Elmaani, using his pseudonym, began promoting a new cryptocurrency referred to as Pearl Tokens that operated on a network dubbed the Oyster Protocol. Between October and December 2017, Elmaani sold Pearl tokens to the public via an ICO but also retained a substantial amount of additional Pearl Tokens. In December 2017, Elmaani sold millions of those retained Pearl Tokens on a secondary market platform in exchange for other cryptocurrencies. Elmaani also created a non-U.S. corporation, which allegedly served as an anonymous holding company to own and obtain income from the Oyster Protocol.
In October 2018, Elmaani allegedly orchestrated an exit strategy involving a smart contract that issued new Pearl Tokens, some of which were sold at a below-market ICO price and the remainder which Elmaani retained for himself at no cost. Elmaani then allegedly used a non-U.S. exchange to convert millions of his newly issued Pearl Tokens to other types of cryptocurrency. The indictment states that Elmaani used tumblers to conceal the destinations of the cryptocurrencies received during the exchange. The non-U.S. exchange subsequently halted trading of the Pearl Tokens at the request of employees of the Oyster Protocol. Elmaani allegedly carried out this exit strategy days before the non-U.S. exchange was set to implement KYC policies that would have required Elmaani to provide identifying information when completing these transactions. Elmaani also used cryptocurrency wallet addresses in the name of his wife to make a series of transfers as part of the exit strategy, according to the indictment.
Also, a U.S.-based exchange issued Elmaani an IRS form showing his receipt of approximately USD12.5 million in cryptocurrency proceeds. The indictment states that Elmaani and his wife filed their joint 2017 U.S. federal income tax return in February 2019 reporting USD15,000 of self-employment income, described as “patent design”, as their sole income for that year. Elmaani did not file a 2018 U.S. federal income tax return. The indictment contrasts Elmaani U.S. federal income tax filings with allegations that Elmaani spent over USD10 million on yachts, over USD1.6 million to purchase a carbon fiber composite company, over USD450,000 in home improvement supplies and USD700,000 to purchase two homes. The indictment alleges further that Elmaani used various entities and nominees and dealt in cryptocurrencies, cash and precious metals to obscure his ownership of the unreported income.
Elmaani was arrested in West Virginia on December 8, 2020 and remains in federal custody
The U.S. Securities and Exchange Commissions initiated a separate civil action against Elmaani for violating the registration and antifraud provisions of U.S. securities law.
These recent actions are consistent with the U.S. IRS’s campaign to enforce tax compliance associated with cryptocurrencies (e.g. July 26, 2019 IRS announcement) and the U.S. Department of Justice’s cryptocurrency enforcement framework and highlight the U.S. government’s ability to gather and piece together cryptocurrency transaction information from various services. This case also underscores the U.S. government’s scrutiny over the use of tumblers, off-shore entity structures, non-U.S. exchanges, limited KYC procedures, and ICOs.